Mortgage Loan Basics for Kalispell Borrowers

Mortgage loans utilize real estate as collateral. This is a loan that is commonly used for purchasing a home. Mortgage loans are fully amortizing most of the time, which means the borrower will pay off the monthly principal and interest payment through the number of payments stipulated in the loan agreement. A mortgage loan is typically identified by the length of time given for the repayment, such as 30 or 15 years as well as whether the interest rate provided is fixed or adjustable. Mortgage loans in which the down payment is lower than 20% usually necessitate the need for Private Mortgage Insurance (PMI) or government insurance or guarantee.

Monthly Payments

The majority of mortgage loans consist of monthly repayments of principal and interest in addition to payments that are put aside in an escrow account to pay expenses such as homeowners’ insurance and property taxes. Loans with PMI or government mortgage insurance may require the borrower to pay mortgage insurance premiums on a monthly basis as part of the fixed monthly mortgage loan payment.

There are bi-weekly mortgages as well that require the borrower to pay 26 payments per year. It is important that you ask your lender whether they offer these mortgages and how such a program can work for you.

Popular Mortgage Terms – 15 and 30 Years

The most common type of mortgage is a 30 year mortgage. However, some homeowners who can afford a 15 year mortgage prefer that option because it reduces the time of repayment and also reduces the interest rate paid. With a 15 year mortgage, you pay the principal back much faster than with a 30 year mortgage, but the monthly payments are also higher.

Conventional Mortgages

Conventional mortgages are not guaranteed or insured by the government. As mentioned above, conventional loans with a 20% or less down payment generally require PMI, which protects the lender in case the borrower defaults on the mortgage.

FHA Loans

The Federal Housing Administration (FHA) governs a number of low down payment mortgage insurance programs that purchasers can use. An FHA insured mortgage loan requires the buyer to make a 3.5% down payment for maximum financing. You can often obtain an FHA loan from the same institution that offers a conventional loan.

Before you decide on the right type of loan for your home purchase, consider your options carefully and contact an experienced lender serving your area.